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Description : This report by Torreya will provide you: • Recent updates on market and regulatory policy changes in China that are fueling the demand for innovative products in China and in-licensing activities • Recent updates on new rare disease policies that will sort the increasing needs in China • Detailed analysis of the recent trends in in-licensing, as well as, out-licensing activities, and typical deal structures and terms Key points of the report: • The China pharmaceutical market is the second largest with further growth of 230% by 2030. • Global transactions to China is increasing rapidly. • In-licensing seems all set to dominate in cross-border transactions in the next 3-5 years.

Tags : Global pharma, Biopharmaceutical Sector, pharmaceutical industry, Biotech, healthcare, pharma, biopharma companies, China pharmaceutical market, Pharma Licensing

Published on : Jun 28, 2020 | Views : 2190 | Downloads : 0

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Acceleration of Biopharma Partnering Activity into China Evolving Marketplace Favorable to Drug Development and Western Partners December 2019
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Table of Contents 2 Preface & Executive Summary Recent market and regulatory changes Reimbursement Policy Changes Recent Regulatory Policy Changes New Policies on Rare Diseases and Pediatrics in China Cross-Border Licensing Activities Typical Deal Structures Licensing Deal Values Out-licensing from China 3 6 10 15 20 26 33 36 45 48 49 Outlook of cross-border transactions Torreya China Team and Capabilities
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Preface & Executive Summary 3
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We at Torreya are engaged in providing strategic advice to companies in the life sciences industry. Torreya has a four person team covering Chinese pharmaceutical companies that is in China at least six times a year. We also maintain a database of deals in the China market to analyze trends. This report may provide you with: An update on recent market and regulatory policy changes in China that further fuel the demand for innovative products in China and in-licensing activities Highlight of new rare disease policies that could address high unmet needs in China An analysis of the trends in both in-licensing and out-licensing activities, and typical deal structures and terms Please contact the below members of the Torreya China team if you have any questions or comments. 4 Preface Jie Liu Managing Director, China Lead Jie.liu@torreya.com Cell: 917.683.4003 Jocelyn Lyu Analyst, China Lead Jocelyn.lyu@torreya.com Cell: 917. 971.6415
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5 The China pharma market is expected to be the second largest with further growth of 230%1 by 2030 Favorable government regulatory policies and increasing VC financing New public listings in Hong Kong and Shanghai for pre-revenue companies giving more Hong Kong Stock Exchange (HKEX) remains attractive to high quality biotech companies Shanghai Science and Technology Innovation Board (STAR Market) was launched on July 22 to list pre-revenue biotech companies, giving more opportunities for strong biotech companies Cross-border transactions to China have been growing rapidly in recent years Outbound overseas M&A and investment are down due to geopolitical reasons (CFIUS and trade war) but inbound licensing has increased and accounts for over 75% of total deals in 2018 Interestingly, licensing deals are not blocked by CFIUS and have been unaffected by the trade war 2019 has seen large transactions and more diverse structures in China related transactions: Everest Medicines, backed up C-Bridge Capital paid $835 million for China rights to an antibody-drug conjugate from Immunomedics, with $65M upfront, the largest in licensing history in China Cytovant paid a $1 billion package for China rights to four T-Cell immunotherapies from Medigene Amgen paid $2.7B for a 20.5% stake in BeiGene (25% stock premium) to develop oncology drugs in China Astra Zeneca launched $1B China investment fund with Chinese investment bank CICC We believe that in-licensing is expected to dominate in cross border transactions in the next 3-5 years Recognition of need for R&D and using licensing to fill gap VCs and emerging biotech companies provide significant market/appetite for late-stage assets from US / Europe Change in regulatory environment might accelerate drug development and approval Torreya has expertise in facilitating China deals Most active financial advisor by far on China transactions in the last 24 months Five person team supports inbound and outbound licensing, M&A and JV work Executive Summary 1 Source: Torreya forecast based on OECD GDP projections and historical relationship between country GDP growth and pharmaceutical consumption.
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China Market and Recent Changes 6
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7 China’s healthcare spending per capita and relative to GDP is still low compared to other nations and indicates significant room for growth potential. The healthcare market in China is growing at a staggering rate due to factors such as the aging population, rapid urbanization, growing domestic and international investment in research and development, and robust government support China’s healthcare industry is projected to be around $2.4 trillion by 20301 Healthcare Expenditure as % of GDP in 20172 Healthcare Expenditure Per Capita in 20172 China is the second largest healthcare market in the world. 17.1% 11.5% 10.8% 10.4% 10.2% 9.5% 5.1% United Germany States Japan Canada Denmark United Kingdom China $10,207 $5,728 $5,182 $4,826 $4,717 $2,999 $2,647 United Germany States Japan Canada Denmark United Kingdom China 1China Daily, “China’s health service industry to reach 16 trillion yuan by 2030,” Aug 15, 2017 2OECD (2019), Health Spending. Data retrieved on 07/01/2019.
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8 China Projected to Have the Highest Healthcare Growth Spend Pharmaceutical Sector Growth Forecast Size of Pharmaceutical Sector in the Future vs. Today1 Source: Looking to 2060: Long-Term Global Growth Prospects, OECD 2012
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9 Positive for innovative drug companies China’s health insurance funds have been running in deficit since 2011. Government subsidies have been supporting the funds, accounting a quarter of the fund’s total revenues in 2018 Soaring healthcare costs with high prices of drugs that have gone off patent: US generic drug prices on average are 55% of those in China, according to a recent Credit Suisse Group AG report Chinese generic companies historically enjoy 80-90% gross margin for selling generics with large sales force Until recently, drug approval process in China was complex and tedious, blocking many new medicines from getting in: CFDA stated fewer than a third of the 433 new treatments approved in developed countries reached China between 2001 and 2016 China patients lagging behind in accessing the newest drugs, as long as 7 years Recent changes in favorable regulatory policies and national drug bidding process might accelerate development and approval of innovative medicines: ICH membership MAH (Marketing Authorization Holding) Streamlining of the Clinical Trial Approval (CTA) process Shortened Timeline for Imported Drug License Expedited Orphan Drug Review Process 4+7 bidding with guaranteed market share to significantly decrease generic drug pricing and at the same time, to shift spending to pay for new innovative drugs and orphan drugs Significant issues lie behind growth of China Pharma Market, resulting in recent government policy changes Sources: Chinese Ministry of Finance, Nomura Research, Bloomberg
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10 Certain large pharma companies have always had a meaningful presence in the China market: These companies include AstraZeneca, Bayer, Novartis and Pfizer Due to the high growth and sheer size of the market, we are starting to see a variety of approaches emerge to facilitate increased exposure to the market. Examples include: Amgen’s acquisition of a 25% stake in BeiGene and cross license of rights to oncology products into China. AstraZeneca’s decision to open a $1 billion fund to invest in Chinese start up. It’s not a surprise as 21% of all AZ revenue comes from China today (over $5 billion in 2019). China is one of AZ’s main areas for growth. Pfizer’s decision to merge its legacy brands and generics (Upjohn) into Mylan and to relocate this company to China. The new company has renamed itself as Viatris, moved its executive team to Shanghai and has indicated that its plans include “building a meaningful presence in China”. To be fair, big pharma interest in China remains fairly nascent. Only four of the top fifteen pharmas break out China revenue at all. For those that do, China accounts for less than 10% of total revenue in total. Big Pharma Interest in China is Rising Larger Pharma Companies are Beginning to Pay More Attention to the China Market 2% 2% 3% 4% 5% 7% 8% 10% 12% 13% 17% 21% 8 9 10 11 12 13 14 15 16 17 18 19 YEAR (20XX) PERCENT OF REVENUE FROM CHINA ASTRAZENENCA: PERCENT OF REVENUE FROM CHINA* * Notes and Source: AstraZeneca annual reports, 2008 to 2018 and Quarterly financials for 2019. Q4 2019 results are forecast using the trend from previous quarters.
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XGEVA was launched in China in 9/2019; KYPROLIS and BLINCYTO are in Phase 3 trials in China Both parties will equally profit and loss during the initial 5 years Two of the three products will revert back to Amgen, 1st product after 5 years and 2nd product after 7 years Amgen and BeiGene Deal on Oct. 31, 2019 Amgen Enters Into Strategic Collaboration With BeiGene To Expand Oncology Presence In China Amgen to significantly accelerate its plans to expand its oncology presence in China Amgen to acquire 20.5% stake in BeiGene for approximately $2.7 Billion in cash At 36% premium to BeiGene's 30-day volume-weighted average share price as of Oct. 30, 2019 Amgen will nominate one person to serve on BeiGene's Board of Directors BeiGene to commercialize XGEVA® (denosumab), KYPROLIS® (carfilzomib) and BLINCYTO® (blinatumomab) in China Amgen and BeiGene will collaborate on Amgen’s 20 oncology drugs in China and globally BeiGene will share global R&D costs and contribute up to $1.25 billion to advance these medicines Amgen will pay royalties to BeiGene on the sales of these products outside of China, with the exception of AMG 510, Amgen's first-in-class KRASG12C inhibitor BeiGene will assume commercial rights in China for seven years after launch for those that receive approval in China, including AMG 510 After this time, BeiGene will retain rights to up to six of these products in China, excluding AMG 510, while rights on remaining products revert to Amgen Amgen and BeiGene will share profits in China equally on these products until the rights revert to Amgen, after which Amgen will pay royalties to BeiGene on sales in China for a period of five years after reversion Amgen will continue to commercialize its non-oncology product portfolio in China Big Pharma Structured Entry into the China Market Details of the collaboration are in a press release at: 11 https://www.prnewswire.com/ news‐releases/amgen‐enters‐ into‐strategic‐collaboration‐ with‐beigene‐to‐expand‐ oncology‐presence‐in‐china‐ 300949421.html
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Reimbursement Policy Changes 12
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The national reimbursement drug list (NRDL) and the essential drug list (EDL) intend to provide basic medical coverage to China’s population of 1.4 billion, typically covering well-established and relatively cheap medicines1 Updates to the NDRL have often been significantly delayed. The list should have been updated every two years but there has been a significant lag Innovative medicines have historically faced a tremendous struggle to attain reimbursement in China Overall coverage for innovative medicines has been very limited Securing a place on the NDRL for innovative products has been a challenging issue for global pharmaceutical manufacturers Recent changes in national pricing and reimbursement policies are prepared to enhance patient access to innovative therapies Regular updates to the NDRL The rise of supplemental private health insurance 13 Recent changes to the reimbursement policy in China are helping to drive innovation
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China’s Recent Reimbursement Landscape shows that the NDRL updates in 2017 have increased the number of products reimbursed 14 Since 2013 Some provinces began to pilot the negotiation mechanism in reimbursement 2013 Jiangsu included 3 products 2014 Zhejiang's first negotiation included 15 products for reimbursement 2015 First national pilot in reimbursement negotiations for 3 products March 2017 New NDRL updates and 44 products entering negotiations First NDRL update since 2009 June 2017 36 products agreed to gain national reimbursement January 2018 Zhejiang published the second list of provincial reimbursement negotiations for an additional 21 innovative medicines October 2018 Another 17 oncology products agreed to gain national reimbursement
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Two-Invoice System for Drug Procurement – December 2016 Structure where only up to two invoices are issued along the chain of pharmaceutical drug procurement, with one issued by the pharmaceutical manufacturer and the other issued by the distributor to the medical service providers Eliminates multiple layers of distributors and streamlines the procurement process to a large extent In addition to the layered supply chain, the complex distribution network and the lack of transparency have elevated pharmaceutical product prices The two-invoice system plans to establish a distribution environment where the prices of pharmaceutical products are feasible and affordable to the public Healthy China 2030 – October 2016 China officially passed the blueprint of “Healthy China 2030”, working towards the national goal of obtaining a health standard on par with developed countries by 2030 It is a significant move to enhance public health, which is also a response to the global commitments China is exploring methods to tackle rapid aging, growth of NCDs (non-communicable diseases), and inflation of health demand. It also plans to advance the reform of the medical insurance reimbursement methods There are still some considerable issues which includes the rationality of indices and the coverage of indices for certain heath-related issues 15 Policy Initiatives That Influence Pricing and Reimbursement
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The New Generic Drug Volume-based Purchasing The 4+7 program, officially launched in November 2018, intends to improve patient-access to generics by centralizing drug procurement The National Drug Centralized Procurement Pilot Scheme, commonly known as the 4+7 Scheme, intends to decrease the prices of generic drugs The program encourages the consolidation of a fragmented system for procuring generic drugs in the country, beginning with 11 major cities* The program plans to bring a centralized system of quality control in the China pharmaceutical industry The absence of such a system has permitted many local manufacturers to function in the market with low- quality versions of a drug and have made high profit margins that significantly exceeded the global average Multinationals, which generally offer better, high quality drugs, were subject to excessive waiting periods in order to attain import licenses from the government In addition to improving affordability and quality assurance, the program also eliminates favoritism and corruption as manufacturers have used their regional influence to win local hospital tendering bids The government might give the tender for a generic drug to the lowest bidder, who is assured a sale volume of 60-70% of the total market for a year across the 11 major cities In September 2019, the generic drug tender program was expanded and is now called “4+N” and has expanded: “The scheme could be expanded to an additional 25 provinces and regions, who may form a league to look for suppliers for these drugs that could be stocked at public hospitals as well as some military and private medical institutions, according to documents released on Sunday by the drug procurement branch of the Shanghai Healthcare Security Administration.” (Source: Reuters, Sep 2, 2019). The program now covers 70% of the Chinese market 16 China is Reforming its Healthcare System in Order to Adapt to a Changing Economic and Demographic Situation
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Recent Regulatory Policy Changes 17
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National Medical Product Administration (NMPA) Formerly known as the China Food and Drug Administration (CFDA) Responsible for issuing marketing authorizations of drugs and medical devices and supervising product quality National Development & Reform Commission (NDRC) Responsible for setting the price of drugs and medical services Develops and implements strategies of national economic and social development National Health Commission (NHC) Responsible for the overall management of healthcare reform, administering China’s Essential Drug List (EDL) and monitoring the drug tendering and procurement policies Monitoring the operation of state-owned hospitals, drug registration and safety administration The Ministry of Human Resources and Social Security (MOHRSS) The authority that is responsible for developing the National Drug Reimbursement List. Manages the medical care programs and reimbursement system Ministry of Commerce Regulates the distribution of medicines and medical equipment Ministry of Finance Investments in healthcare sector and subsidies for health insurance 18 China’s New Regulatory Agencies and Responsibilities
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19 On 26 August 2019, the National People's Congress passed amendments to the Drug Administration Law which took effect on December 1st, 2019 The Drug Administration Law reflects China's continuing commitment to the pharmaceutical industry as the provisions in the law addresses key issues, which are of great public concern Key new provisions include: Implementing a nation-wide enhanced Drug Market Authorization Holder system. A market authorization is like an NDA in the US. It comes with both privileges (right to market a drug) and obligations (requirement to inform government of adverse events etc) Drug innovation incentives. Bioequivalence needs to be recorded for generics. Priority review and accelerated approval pathways set up for pediatric drugs, rare disease drugs and drugs with urgent clinical needs Rules for compassionate drug use System by which drugs can be conditionally approved Some key areas with crackdowns: Limitations on use of e-pharmacies Definition of “inferior drugs” and “counterfeit drugs” Fines and other potentially severe penalties for violations of the rules Amendments to the Drug Administration Law Source and Note: Further details are at https://www.twobirds.com/en/news/articles/2019/global/china-passed-new-amendments-to-the-drug-administration-law
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The rapid growth of China’s pharmaceutical market presents opportunities for global pharmaceutical companies Recent regulatory changes have allowed the implementation of future trials in China in tandem with the United States and Europe launches This is beneficial to Chinese patients as they could receive required medications at a faster rate and global pharmaceutical companies may prosper in bringing the medications to the market Recent regulatory changes may lead to a decline in redundant clinical trials and less unnecessary risk for patients With its membership in the ICH, China now follows international GMP and GCP standards that are generally endorsed in the international pharmaceutical industry Clinical data generated in China and overseas in ICH territories during drug development may be mutually approved across Chinese and international regulatory authorities The volume and pace of clinical trials is expected to increase dramatically. Chinese regulatory authorities have made changes that accelerate regulatory reviews, establish new and flexible policies for import of drugs into China, grant market exclusivity periods guaranteed for specific products, and make critical advancements to the approval process of clinical trials in China 20 Implications of the Recent China Pharma Regulatory Changes
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New Policies on Rare Diseases and Pediatrics in China 21
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22 Historically China did not have specialized regulations or policies on orphan or rare disease drug development and approvals Of the 44 globally available rare disease therapies, only 19 are currently marketed within China, and of these 19, all are priced out of reach for the average Chinese patient China has an estimated population of nearly 20 million people suffering from a rare disease China started to issue regulation guidelines in early 2018 with the goal to accelerate the filing, approval and data exclusivity of rare disease products that were already on the market in the West The first official policy and list of 121 rare diseases were jointly issued by NHC / NMPA / MOST* on May 11, 2018 Overseas data could be accepted for NDA submissions for these 121 drugs based on policy update on May 23 2018 3 months review for rare diseases vs. 6 months for others Effective March 1, 2019, value-added tax for 21 orphan disease drugs is expected to drop to 16 percent from 3 percent, according to the announcement by China’s State Council to stimulate rare disease market Additional 26 drugs were added on May 29, 2019 by CDE. These drugs were already approved outside of China and would receive expedited approval in China Environment Increasingly Favorable for Rare Disease Drugs *CDE: Center for Drug Evaluation, directly involved in the clinical trial application and drug registration approval process *NHC: National Health Commission responsible for managing ethics committee nationwide, establishing the National Committee of Medical Ethics Experts, and for developing policies relating to ethical review *NMPA: National Medical Product Administration is the regulatory authority responsible for clinical trial oversight, approval and inspections for drugs to be registered in China. Previously known as CFDA *MOST: Ministry of Science and Technology
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23 China is still at infancy stage with its regulatory policies on rare diseases. We are expected to see significant improvement in regulatory policies and increase in drug approvals to address the unmet medical needs The current Chinese rare disease list gives priority to rare diseases with a relatively high prevalence in China, that pose a heavy burden, and that are highly treatable For companies with rare disease drugs that have been approved already outside of China we recommend consulting and interacting with CDE (Center for Drug Evaluation) as early as possible in order to reduce registration timeline in China For products still under development outside of China, under the current policy companies cannot submit for NDA approval. To enter into China at the same time or earlier than US or European approval, we recommend finding a local Chinese partner and let the partner participate in global trials. Under the Data Protection Regulation (still in Draft stage), if approved, the drug would enjoy 12 year data exclusivity in China Impact and Considerations for Rare Disease Drug Registration in China
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24 List of 121 Chinese Rare Diseases
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25 List of 121 Chinese Rare Diseases Laron Syndrome Leber Hereditary Optic Neuropathy Long Chain 3-hydroxyacyl-CoA Dehydrogenase Deficiency Lymphangioleiomyomatosis (LAM) Lysine Urinary Protein Intolerance Lysosomal Acide Lipase Deficiency Maple Syrup Urine Disease Marfan Syndrome McCune-Albright Syndrome Medium Chain Acyl-CoA Dehydrogenase Deficiency Methylamalonic Academia Mitochodrial Encephalomyopathy Mucopolysaccharisdosis Multi-Focal Motor Neurothy Multiple Acyl-CoA Dehydrogenase Deficiency Multiple Sclerosis Multiple System Atrophy Myotonic Dystrophy NAGS Deficiency Neonatal Diabetes Mellitus Neuromyelitis Optica Niemann-Pick Disease Non-Syndromic Deafness Noonan Syndrome Ornithine Transcarbamylase Deficiency Osteogenesis Imperfecta (Brittle Bone Disease) Parkinson Disease (Young-onset , Early-onset) Paroxysmal Nocturnal Hemoglobinuia Peutz-Jeghers Syndrome Phenylketouria No. Disease No. Disease POEMS Syndrome Porphyria Prader-Willi Syndrome Primary Combined Immune Deficiency Primary Hereditary Dystonia Primary Light Chain Amyloidosis Progressive Familial Intrahepatic Cholestasis Progressive Muscular Dystrophies Propionic Acidemia Pulmonary Alveolar Proteinosis Pulmonary Cystic Fibrosis Retinitis Pigmentosa Retinoblastoma Severe Congenital Neuropenia Severe Myoclonic Epilepsy In Infancy (Dravet Syndrome) Sickle Cell Disease Silver-Russell Syndrome Sitosterolemia Spinal and Bulbar Muscular Atrophy (Kennedy Disease) Spinal Muscular Atrophy Spinocerebellar Ataxia Systemic Sclerosis Tetrahydrobiopterin Deficiency Tuberous Sclerosis Complex Tyrosinemia Very Long Chain Acyl-CoA Dehydrogenase Deficiency Williams Syndrome Wiskott-Alrich Syndrome X-linked Agammaglobulinemia X-linked Ldrenoleuko Dystrophy X-linked Lymphoproliferative Disease
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26 China’s Pediatric Drug Market Attractive to Innovators Source: Beijing Pediatric Research Institute, July 2019. Current Chinese Pediatric Market– July 2019 • • • Large market, but few pediatric drugs Estimated 260 million children population by year 2020 China pediatrics dosage form compared to existing dosage forms is 1:59 90% of drugs do not have doses suitable for children Volume and pace of clinical trials in China are expected to pick up precipitously In the coming years Only a few companies focus on development and commercialization of pediatrics in China Widespread use of adult drugs in children that results in significant adverse events in children Challenges– July 2019 High cost and risk for R&D on pediatric drugs High incidence of deadly events due to overdosing Manufacturers are unwilling to produce due to low profit Chinese Regulations – July 2019 Under recent regulatory changes, NMDA is considering favorable regulations to speed up development and approval of pediatric drugs Additionally, NMPA (previously China FDA) implementing priority reviews of certain drugs to facilitate faster patient access, pediatrics included Pending regulations: Conditional Approval by using foreign data and providing 10 years of data exclusivity for NCEs and 3 years for reformulations
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Cross-Border Licensing and M&A Activity 27
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China pharma market has continued its growth as 2nd largest global player due to favorable government regulatory policies, increasing VC financing, new public listings in Hong Kong and Shanghai for pre-revenue companies IPO market remains strong in China and Hong Kong Hong Kong Stock Exchange (HKEX) remains attractive to high quality biotech companies Shanghai Technology and Innovation Board (STAR started recently with success for the initially listed companies Cross-border transactions have been growing rapidly in recent years Mainly for in-licensing to China, accounting for 75% of total deals in 2018 M&A and out-licensing from China are minimal 2019 has seen large transactions and more diverse structures in China related transactions: Everest Medicines, backed up C-Bridge Capital paid $835 million for China rights to an antibody-drug conjugate from Immunomedics, with $65M upfront, the largest in licensing history in China Cytovant paid a $1 billion package for China rights to four T-Cell immunotherapies from Medigene Amgen paid $2.7B for a 20.5% stake in BeiGene (25% stock premium) to develop oncology drugs in China Astra Zeneca launched $1B China investment fund with Chinese investment bank CICC Overseas M&A and investment have been slowing down due to geopolitical reasons (CFIUS, trade dispute) In-licensing is projected to dominate in cross border transactions in the next 3-5 years Recognition of need for R&D and using licensing to fill gap VCs and emerging biotech companies provide significant market/appetite for late-stage assets from US / Europe 28 Overview
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China In-Licensing Deal Activity Peaked in 2018 Key factors behind the jump in licensing activity in 2018: Encouragement of licensing over M&A following the 19th Party Congress Strong stock market valuations of companies that are licensing in many Western drugs Drop in activity in 2019 versus huge boom year in 2018 (but 2019 still the second strongest year in history) Number of In-Licensing Deals for China Rights, 2004-2019 (annualized as of 11/22/2019) 80 4 Source: Torreya China Deal Database, November 2019. 29 13 12 21 18 21 21 32 23 30 44 56
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Dollar Volume of Investment and Upfronts in China Licensing Deals Key factors behind the jump in funds committed in recent years. Encouragement of licensing over M&A following the 19th Party Congress BeiGene / Amgen deal a key driver for 2019 *Data for 2019 shown from Jan 1 to November 22, 2019 and annualized. Volume of Upfronts, Milestones and Investment in China Deals, 2004-2019 ($mm) $216 Source: Torreya China Deal Database, November 2019. 30 $162 $155 $837 $581 $379 $0 $0 $0 $0 $5 $38 $7 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $1,666 $2,525 $3,202
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China Outbound M&A Volume Still Low Due to CFIUS and Currency Restrictions 0 2 4 6 8 10 12 0 500 1000 1500 2000 2500 3000 3500 4000 4500 2013 2014 2015 2016 2018 2019 Number of Transactions Transaction value ($ Millions) Outbound China Pharmaceutical Industry M&A Volume, 2013-2019 Total Value 2017 Deal Count Source: Torreya China Deal Database, November 2019. 31
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China Outbound M&A Deals in Pharma Sector 32
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Typical Deal Structures 33
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Historically, the time to complete an outlicensing China deal for Torreya (from start to finish) averages six months Certain types of projects can go more quickly and others more slowly R&D projects take substantial education and engagement. In contrast, commercial asset sales can get done in as little as three months Manufacturing and supply is an important component in licensing: Most Chinese companies prefer to tech transfer manufacturing to China To enjoy benefits of tax breaks, land purchase and support in regulatory approval To control supply To be competitive in COGs The regulatory filing pathway is driven by where drug is manufactured: IDL (Imported Drug Filing): drug made outside China Domestic Drug Filing: drug made in China by local manufacturer Depending how your choice of product supply, you might have different obligations and responsibilities For IDL pathway, the Chinese drug administration requires site audit and compliance to Chinese regulation Licensing is the most common type of deal structure, with an upfront payment, milestones and a royalty system 34 Doing a China Licensing Deal
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Selected Deal Structure Types Traditional licensing Investment with Licensing JV Divestiture M&A Immunomedics Viracta Aurobindo Indivior Sinclair 4 / 2019 12 / 2018 12 / 2018 2 / 2019 11 / 2018 Sacituzumab Nanatinostat (VRx- 3996) 13 respiratory products in Blow Fill Seal formulation (BFS) Suboxone / Sai Bo Song Tablet Silhouette InstaLift® and other approved products NDA filed Phase 1b/2 Various On market On market Oncology Oncology Respiratory CNS Dermatology Greater China, South Korea and certain Southeast Asian countries Mainland China only China for JV JV supplies US and EU markets China Global $65m $10m equity investment $50m initial capital investment $17.5m upon closing $222m $60m upon US approval $710m development and sales milestones $58m N/A $105m N/A Structure Originator Date Asset Phase ex- China TA Territory Upfront Additional Milestones Royalties Escalating tiered royalties starting in mid teens Tiered royalties N/A Yes, not disclosed N/A 35
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Licensing Deal Values 36
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37 Upfront Payments Over Time UPFRONT PAYMENTS HAVE CREPT UP OVER TIME DUE TO INCREASING MARKET SIZE AND COMPETITION FOR DEALS. Source: Torreya China Deal Database, November 2019. 2004-2011 2012-2014 *Through November 2019. 1.6 6.9 9.1 Average Upfront Payment ($mm) 2004-2019 14.5 $12.2* 2015-2017 2018 2019
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38 Biotech companies in China are more willing to pay higher upfront in licensing transactions 39% 61% Biotech vs Strategic Deal Count Biotech Strategic Strategic vs Biotech Strategic Companies have sales, sales force, manufacturing facilities, and are generally returning a profit Biotech Companies are VC-funded with less than 10 years of existence, returning little to no sales (e.g., I-Mab, Everest Medicine) Total Deal Count – Strategic Strategic Pharma companies lead in total deal count Biotech Deal Count expected to rise as more companies enter then China space Average Upfront Payment – Biotech Biotech has higher average upfront payments Total Upfront Amounts for biotech are more than twice the size of strategic 9.6 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Biotech Strategic Total Upfront Amount ($mm) Average Upfront Amount ($mm) 109.5 51.3 0.0 20.0 40.0 60.0 80.0 100.0 120.0 Biotech Strategic Source: Torreya China Deal Database, July 2019
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Therapeutic Area Breakdown and Deal Statistics Cancer Focused Deals Lead China Licensing Activity The table at left shows the breakdown of China in-licensing deals by therapeutic area. The disease burden and payment system is different in China than in the West. By far the greatest area of licensing activity has been cancer (39.5%) followed by cardiometabolic (10.5%). Other popular areas for deals include anti-infectives, hospital, pain, GI, dermatology, inflammation, CNS, stroke and virology. The TA with the highest average upfront has been liver disease followed by CNS. The highest total deal averages have been associated with Hematology and Gastrointestinal medicines. Source: Torreya China Deal Database, November 2019. 39
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Phase of Development Breakdown and Deal Statistics Majority of Deals are Phase 2 or Later The table at left shows the breakdown of China in-licensing deals by phase of development. The greatest area of licensing activity has been for approved products (24% of deals). But there is robust activity at all points of development. Notably, 21% of deals were done at the preclinical level. Chinese pharmaceutical companies have robust R&D capabilities and are willing to collaborate with their Western counterparts on interesting science. Approved 24% Source: Torreya China Deal Database, November 2019. 40 Discovery 3% Phase 1 14% Phase 2 22% Phase 3 15% Distribution of China In-Licensing Deals by Phase of Development Pre-approval 2%
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China Licensing Deals Expected to Continue Growing Driven by the New NMPA Policies 2019 Transactions - Late-Stage Products ($ in mm) 2019 Late Stage/Ph.3
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42 China Licensing Deals Expected to Continue Growing Driven by the New CFDA Policy (continued) 2019 Transactions – Phase 2 2019 Ph.2 ($ in mm)
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43 TORREYA | Creating Value through China Partnering- November2019 China Licensing Deals Expected to Continue Growing Driven by the New CFDA Policy (continued) 2019 Transactions – Early Stage 2019 Early Stage ($ in mm)
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44 Comparison to Japan In-Licensing Deals The tables at left shows the breakdown of China in-licensing deals by phase of development versus Japan in-licensing deals. The average upfront on a Japan deal is 3.5x times higher than that for a China deal. The total deal packages for Japan are about 3.1x times of Chinese ones. The difference is a reflection, of course, of the economic value of products in each territory. With a GDP/Capita almost five times higher, the ability to achieve higher pricing for products in Japan more than outweighs the larger size of the Chinese population. We do expect to see the gap in deal economics between the territories narrow in the years ahead. China Territory In-Licensing Deal Statistics China Deal Percent of Upfront Payment Total Deal Average Phase Count Deals Average ($mm) ($mm) Japan Territory In-Licensing Deal Statistics Source: Torreya China Deal Database, November 2019.
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Out-licensing from China 45
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Historically very limited out licensing of innovative products Mainly due to little R&D spending Limited to a few pharma companies or biotech companies Out-licensing or finding a distribution partners for generic products very active We have seen increasing activities of outlicensing efforts by Chinese companies in 2018 and 2019 Increased filing of IP from China ICH member and participating in global multi-center trials Increased spending in R&D Overall improvement of R&D capabilities with increasing return of US trained scientists 46 China Outlicensing is Expected to Grow in the next 5 -10 years
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Chinese Pharma Companies’ Ex-China Collaboration Structure 47
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M&A and investment into US or other western countries might slow down in the short term due to CFIUS, trade dispute and geopolitical reasons Licensing into China is expected to dominate transactions with structure variations Global participation Equity investment China funding new indication (ICH membership) Increasing upfront and overall payment Late stage remains highest interest De-risk VC expectation of 5 year return Increased investment from VCs in healthcare is expected to accelerate deal activities and increasing deal terms VC backed biotech companies might be more active and more willing to pay in order to win VC more willing to form a company with own management team and in licensing products from global pharma companies Oncology is projected to remain highest attention but we have seen increasing interests in renal, diabetes, ophthalmology 48 Outlook for Pharma Cross-Border Deals Involving China
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Torreya China Team and Capabilities 49
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Torreya is the most active advisory firm in China licensing. Sources: Data based on public information and Torreya China Deal Database, December 2019 50 Due to its dedicated China licensing advisory team and market knowledge Torreya has rapidly become the leader in inbound asset level transaction advisory roles involving the Chinese pharmaceutical sector League Table, Advisory Roles in Pharma Sector China Licensing and Asset Sale Transactions, 2015 to 2019 The next page looks at a broader set of deal types, including M&A and joint ventures
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Torreya is the Most Active Financial Advisor Focused on the Chinese Pharma sector Top Financial Advisors in Pharmaceutical Industry M&A, JVs and Licensing Deals involving a China Party Jan 1, 2015 to November 22, 2019 by Deal Count, Includes Closed Transactions Sources: Torreya China Deal Database, December 2019
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Torreya Transactions to China Outlicense of China rights of AJT240 to Up to $24 million June 2018 JV with $50M investment for 13 respiratory products $50 million December 2018 欧康维视生物 License of Gemcabene in China to July 2019 Pediatrics, Phase 2 Cardiovascular Orphan in US, Phase 3 Renal disease, 505(b)(2) Suboxone, Approved Drug Addiction Joint Venture Respiratory Orphan, Approved Ophthalmology, 505(b)(2) Hemodialysis, Phase 2 Renal disease Mainly oncology, Approved China License to TAVO plus Sale of Majority Stake to $30 million October 2019 China License in oncology, Phase 2 + Investment 52
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Example of Torreya Advised China Transactions 2019 Deals for Oncosec and Calliditas ONCOSEC CHINA GRAND CASE STUDY Sale of Majority Stake to $30 million Pending Torreya was retained by Calliditas, a public company based in Sweden, to assist with partnering China rights to Nefecon®, a sustained release of budesonide in oral formulation. This renal product was in Phase 3 clinical trials in Europe Torreya was brought in after the Calliditas received interest and had initiated contacts with several parties but needed an advisor that understands China market, relevant players and partnering process Upfront: $15M with $106M additional milestones and escalating royalty rates CALLIDITAS LICENSE TO EVEREST MEDICINES License Agreement of Nefecon in China to $121 million ($15mm upfront) June 2019 Oncosec’s product TAVO™ has the potential to become the first marketed therapeutic to address anti-PD-1 non-responders in cancer China Grand showed interest in this idea because it owns a 49% stake in Sirtex and has interest in growing this company’s business plus building its presence in China The deal involves a 49% investment in Oncosec by Grandpharma, a subsidiary of China Grand and a 3% investment by Sirtex itself Terms were upfront: $30M for 52% interest plus China license plus a 20% royalty rate on China license and commercialization support from Sirtex in exchange for a single digit royalty 53
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Torreya’s China team regularly calls on 50+ Chinese corporates and investors. Four members of the team are Mandarin speakers Key activities include inbound partnering; outbound M&A and domestic M&A advisory Members of the team are in China at least six times a year Torreya China Team Kylor Hua Vice President, M&A, Licensing 20+ transactions at Torreya with total value over $2 billion Strong in M&A and licensing processes B.A. in Economics & Cog. Sci., University of Rochester Speaks Mandarin & Japanese Jie Liu Managing Director, M&A, Licensing Leads China coverage for Torreya Spends several months a year on China business development activities Was at J&J and Teva in BD MBA, Wharton Speaks Mandarin Vivian Xu Associate, M&A, Licensing Joined Torreya in July 2016 Formerly Analyst at Fosun Group, healthcare investment team M.P.A., Columbia University Speaks Mandarin Leader, China Transactions Tim Opler Partner, New York Co-founded Torreya in 2007 Formerly banker at Credit Suisse and Professor of Finance at Ohio State Ph.D., UCLA, Economics Jocelyn Lyu Analyst, China Licensing Supports China licensing work Was investment banking analyst at FE International Previous roles at Timberwind Capital and Jebsen Industrial. MS Finance, Fordham Speaks Mandarin Licensing Support China M&A Support China M&A Support China M&A Support 54
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Disclaimer 55 This presentation may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Torreya. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the Information contained in this publication without obtaining specific professional advice. The information used in preparing these materials was obtained from or through public sources. Torreya assumes no responsibility for independent verification of such information and has relied on such information being complete and accurate in all material respects. No representation, warranty or undertaking, express or implied, is made and no responsibility is accepted by Torreya as to or in relation to the accuracy or completeness or otherwise of these materials or as to the reasonableness of any other information made available in connection with these materials (whether in writing or orally) to any interested party (or its advisors). Torreya will not be liable for any direct, indirect, or consequential loss or damage suffered by any person as a result of relying on any statement contained in these materials or any such other information. None of these materials, the information contained in them or any other information supplied in connection with these materials, will form the basis of any contract. To the extent such information includes estimates and forecasts of future financial performance (including estimates of potential cost savings and synergies) prepared by or reviewed and discussed with the managements of the Company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecast obtained from public sources, represent reasonable estimates). There is no guarantee that any of these estimates and projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. Torreya expressly disclaims any and all liability relating or resulting from the use of this presentation. Torreya assumes no obligation to update or otherwise review these materials. These materials have been prepared by Torreya and its affiliates and accordingly information reflected or incorporated into these materials may be shared with employees of Torreya and its affiliates and agents regardless of location. This presentation speaks only as of the date it is given, and the views expressed are subject to change based upon a number of factors, including market conditions. Distribution of this presentation to any person other than the recipient is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of Torreya. This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instrument. You should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. Torreya does not provide any tax advice. Any tax statement herein regarding any U.S. federal or other tax is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties. Any such statement herein was written to support the marketing or promotion of the transaction(s) or matter(s) to which the statement related. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. This presentation does not purport to be all-inclusive or to contain all of the information that the Company may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation. The distribution of these materials in certain jurisdictions may be restricted by law and, accordingly, recipients represent that they are able to receive this memorandum without contravention of any unfulfilled registration requirements or other legal restrictions in the jurisdiction in which they reside or conduct business. By accepting these materials, the recipient agrees to be bound by the foregoing limitations. Insofar as these materials originate in the United Kingdom or are capable of having an effect in the United Kingdom (within the meaning of section 21 of the Financial Services and Markets Act 2000) they are directed only at classes of recipient at whom they may lawfully be directed without contravening that section or any applicable provisions of the Conduct of Business Sourcebook of the Financial Conduct Authority, including persons of a kind described in Article 19 (Investment professionals) or Article 49 (High net worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and are not intended to be distributed or passed on, directly or indirectly, to or relied or acted on, by any other class of persons. Torreya (Europe) LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is not acting for you in connection with any potential transaction(s) described in these materials and thus will not be responsible for providing you the protections afforded to clients of Torreya (Europe) LLP or for advising you in connection with any potential transaction(s) as described in these materials except and unless subject to a subsequent specific written agreement relating to such potential transaction(s) between you and Torreya (Europe) LLP. Torreya (Europe) LLP is authorised and regulated by the Financial Conduct Authority. Securities offered in the United States are offered through Torreya Capital LLC, Member FINRA/SIPC.

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